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Our pensions are the functional equivalent

of $5 million worth of savings in

U.S. Treasurys.

THE FOREIGN SERVICE JOURNAL

|

APRIL 2016

49

Salaries and Retirements: Foreign Service vs. Private Sector

The debate over the value of

public-sector versus private-

sector income and retire-

ment benefits has been

waged intermittently since

the large expansion of the

government following the

Great Depression and World

War II. Unfortunately, the

discussion has been fraught

with stereotypes, inaccurate

information, ignorance and

some vitriol.

During my 30-year For-

eign Service career, I went

through all the ranks from

FSO-8 to Career Minister

and retired without Social

Security or the Thrift Sav-

ings Plan. I also spent 25

years in the private sector

working as a vice president

of a large company (Sears

World Trade), president

of a small company (U.S.

Defense Systems), partner

in a consulting group and a

trustee of Princeton Uni-

versity—a combination big

business and big nongovern-

mental organization.

I know both worlds pretty

well from personal experi-

ence and from familiarity

with the experiences of rela-

tives and friends. Herewith,

my heroically simplified take

on financial remuneration

during and after employ-

ment in each sector.

Advantage,

Private Sector

Private-sector salaries

are about 25 percent higher

than the Foreign Service

at the entry level. This gap

is narrowed, of course, for

entry-level officers who are

posted overseas—almost

all are. At mid-career, the

gap widens and continues

to widen for the rest of the

careers in both sectors. The

reason for this differential

boils down to one word:

equity.

During the course of

their careers, private-sector

employees accumulate

equity in a variety of forms

(owners’ stock, profit-shar-

ing stock grants, options

to buy shares at beneficial

prices and the like). They

have many options for

converting this equity into

retirement income streams.

The multimillion-dollar

termination or retirement

packages paid to departing

or retiring CEOs are primar-

ily in the form of equity—

usually highly appreciated

shares of company stock.

In short, during the working

years, the advantage is with

the private sector.

However, when compar-

ing retirements, the pen-

dulum swings back to the

Foreign Service. Again the

reason can be summarized

in one word: pensions.

Defined-benefit pensions

are fast disappearing in the

private sector. But not for

us, and that is very impor-

tant. Older retiree pensions

are robust. More recent

retirees receive a smaller

percentage of their salaries

as a defined retirement

benefit, but added to this is

Social Security retirement

income.

The vast majority of For-

eign Service retirees receive

retirement payments from

the government (pen-

sion plus Social Security)

ranging from $50,000 to

$100,000 annually. Some

receive higher amounts. For

the purposes of example

and simplicity, let’s say the

average is $100,000.

Advantage, FS

Think about that for a

moment. That income is

guaranteed by the full faith

and credit of the federal

government. To obtain that

income and that guarantee,

a private person would have

to purchase $5,000,000 in

10-year U.S. Treasury bonds

currently yielding around 2

percent!

Note well!

Our pensions

are the functional equiva-

lent of $5 million worth of

savings in U.S. Treasurys.

That fact is well-known and

envied (and in some cases

resented) by our private-

sector colleagues.

Foreign Service pensions

also have the positive attri-

butes of annuities in that

the income is guaranteed

for life (and for the life of

our spouses if we so elect).

Payment is automatic—we

do not have to manage the

money.

Further, our retirement

pensions have none of

the risks of private sector

annuities, which are vari-

able (they can go down) and

subject to commercial risk

(the company funding and

managing the annuity can

go bankrupt).

For most of us, financial

compensation was not high

on our priority lists when we

joined the Foreign Service.

More important were travel,

adventure, change, intellec-

tual challenge and service to

the nation.

Most of us are very for-

tunate to have had careers

that met or exceeded our

youthful dreams and that, in

our autumn years, provide

financial security as well.

By both measures we are

millionaires.

n

Views and opinions expressed in this column are solely those of the AFSA Retiree VP.

Contact:

boyatt@afsa.org

| (202) 338-4045

RETIREE VP VOICE

| BY TOM BOYATT

AFSA NEWS